Perhaps it’s the figuratively overheated political debate of this month, or maybe it’s just the literal heat of Washington, but even some generally reliable sources of policy analysis are starting to overshoot the mark and push the advocacy envelope when making otherwise defensible points. Consider three examples within the last week or so involving whether small employers are more likely to drop health insurance coverage, how much private-sector job growth has slowed, and whether Social Security checks will still be paid if the U.S. debt ceiling is not raised.
On Monday, the Wall Street Journal editorial page highlighted the findings of a new survey of small businesses by the National Federation of Independent Business, which suggested that 57 percent of a cross-section of companies employing 50 or fewer workers and currently offering health insurance coverage may stop doing so, in part due to a future “flight to the exchanges” triggered by the Affordable Care Act, also known as Obamacare. The actual NFIB report was more carefully nuanced in explaining several factors behind future reductions in health insurance offers by small businesses. However, the Journal editorial overstated the scope of eligibility for heavily subsidized insurance in the future state-based health benefits exchanges, asserting that “small-business workers are eligible for exchange subsidies even if they can get job-based coverage.” (Emphasis added.)
The actual provisions of the new healthcare law would operate more narrowly than that. Employees whose employer currently offers “qualified” coverage to them are not eligible to gain alternative coverage in the future exchanges, unless their family income is below 400 percent (but above 100 percent) of the federal poverty level and their share of premiums under the plan offered by their employer is greater than 9.5 percent of their household income. On the other hand, small employers with 50 or fewer workers are exempt from the employer insurance coverage mandate and its penalties, as well as from any penalties if its employees offered “unaffordable” coverage instead choose to gain coverage in the exchanges.
Several limiting factors may slow any rush to the exit doors away from employer-based health insurance. Whether proposed state-based health benefits exchanges actually get off the ground in time for their scheduled January 2014 launch date remains in doubt for most states, let alone just how attractive their likely limited menu of bronze and silver actuarial value coverage will be. On the back side, any unexpectedly high-volume rush to the exchanges also would simply overwhelm the shaky fiscal economics of the generous tax subsidies promised to enrollees with household incomes below 400 percent of the federal poverty level, at which point too much of a good thing would likely be politically renegotiated to be provided in more limited quantities. The more likely factors leading to larger enrollment of small business employees in exchange plans include more new firms no longer ever starting to offer health insurance, the market churning effects of small firms currently offering insurance that will go out of business by the time the exchanges start operation, and broader competitive pressure on firms offering coverage to keep up with their rivals that do not.
The other important findings in the NFIB survey, apart from the likely future reduction in insurance offered by small employers, are that an overwhelming share of those employers with some knowledge of Obamacare think that it will not reduce the rate of future healthcare cost increases, will increase taxes, and will add to the federal deficit. The over-hyped small business tax credits in the new law, designed to temporarily subsidize purchases of insurance, would almost exclusively provide a windfall to small employers already offering insurance. It would incent only a tiny fraction–at most 11 percent–of small employers having fewer than 25 workers and not currently offering insurance to begin to do so.
The NFIB survey also underscored another false claim sometimes made by Obamacare backers, to the effect that the law’s benefits for employers are already being realized, even before its full implementation, in light of “evidence” that the number of small employers with three to nine workers offering health insurance has risen from 46 percent to 59 percent. Unfortunately, that empirically shaky “finding” came from the 2010 annual survey of employer health benefits by the Kaiser Family Foundation and the Health Research and Educational Trust (HRET) released publicly last September. Not only was it based on interviews with employers conducted from January 2010 to May 2010 (the new healthcare law was finally enacted in late March 2010), but even the Kaiser/HRET survey conceded that “the offer rate reflects information about firms that are still in business in 2010 and does not account for firms that have gone out of business due to the economic recession. A possible explanation for the increase in the offer rate is that non-offering firms were more likely to fail during the past year, and the attrition of non-offering firms led to a higher offer rate among surviving firms.”
A somewhat more sophisticated technique for stretching a point appeared in last week’s effort by the Heritage Foundation to link a slowdown in private-sector job creation to the enactment of Obamacare in March 2010. A web memo by James Sherk, “Recovery Stalled After Obamacare Passed” technically demonstrated that the rate at which monthly job creation improved was much better between January 2009 to April 2010 than between May 2010 and June 2011. (My AEI colleague Kevin Hassett was the first observer to note the initial breakpoint in net job creation trend between April and May 2010, in a September 2010 article in National Review.) However, choosing as one endpoint the job-loss trough of the recession (841,000 net private sector jobs were lost in January 2009) and then displaying the factoid that fewer net jobs were lost throughout the rest of 2009 as a relative rate of improvement—until the net creation of private-sector jobs finally became positive in early 2010—does not tell the entire story. Sherk’s calculations regressed against a time trend variable the monthly net private-sector job creation figures to conclude that “net private sector job creation improved” by 67,600 jobs per month between January 2009 and April 2010, whereas after April 2010, this improvement dropped to just 6,500 jobs a month. This language blurs the distinction between the monthly rate of private job creation improvement and the absolute level of positive job creation during those two different periods. Consider this alternative way to display the same monthly Bureau of Labor Statistics data for what happened to private-sector job creation from January 2009 to June 2010 (as re-assembled by my research assistant Gabe Sudduth):
Hence, a different way to summarize the differences between the two respective time periods is to observe that the “average monthly net job creation” was (negative) 292,000 from January 2009 to April 2010, but (positive) 129,000 from May 2010 to June 2011.
The average monthly total of private sector jobs was 108,231,000 in calendar year 2009, 107,335,000 in 2010, and 108,620,000 in the first six months of 2011. Net average monthly private-sector job creation was (negative) 416,000 for all of 2009, 98,000 from January 2010 through April 2010, and 158,000 from May 2010 through June 2011.
No single one of the above ways to describe private-sector labor market experience before and after the enactment of Obamacare is complete and unequivocal by itself. It’s certainly true that whatever post-recession recovery began, it has been slow, below historical averages, and is stalling. The new health law has been a factor behind this, but not necessarily the most dominant one (at least not until more of its most dangerous features are implemented in future years). Yet many Americans might think that describing a period from January 2009 to April 2010 as better (because a declining net number of jobs were being lost each month) than the subsequent period (when more net jobs were being added, albeit at a slowing rate) seems a bit counterintuitive. Laissez les bons temps rouler.
Finally, we witnessed one of the early signs of the fiscal apocalypse last week—some free-market conservatives extolling the stabilizing virtues of the Social Security trust fund! In a Wall Street Journal op ed (“Obama’s Debt-Ceiling Scare Tactics”), Thomas Saving of the Private Enterprise Research Center at Texas A&M decried President Obama’s “alarming” statement that if the national debt ceiling was not raised by August 3, he could not guarantee that the federal government could pay $20 billion in Social Security checks that day to the nation’s senior citizens. As a former public trustee of the Social Security and Medicare Trust Funds, Saving assured readers that meeting Social Security obligations in August and many future months would add nothing to the gross federal government debt that is subject to the debt limit. At least until the entire $2.4 trillion Trust Fund is exhausted in 2038 (based on the latest official assumptions).
Dr. Saving accurately described the basics of longstanding law that requires the Treasury to redeem any trust fund bonds presented to it by the Social Security Administration whenever the retirement program is running an operating deficit (i.e., its incoming “current account” tax revenue is less than its outgoing expenditures on benefits and administration. And the program has been working hard recently to test the limits of that option, by starting to run those deficits again, beginning last year).
Saving’s case for relying on the Social Security trust fund, come fiscal hell or debt high water, was bolstered by the legal analysis of former federal judge and constitutional law scholar Michael McConnell. He carefully explained that President Obama’s recent “attempt to scare Social Security recipients is without legal foundation” and reaching the debt ceiling will not affect the ability of the Social Security Administration to pay its obligations. As a former deputy general counsel at the Office of Management and Budget in the early 1980s, McConnell had direct experience in examining the legal limits of running the federal government during several budget-less shutdowns. According to McConnell, as long as Social Security is running a current account deficit, its trustees are legally entitled to redeem its trust fund bonds.
The Social Security trust fund will go to Treasury and cash in some of its securities, using the proceeds to send checks to recipients. Each dollar of debt that is redeemed will lower the outstanding public debt by a dollar. That enables the Treasury to borrow another dollar, without violating the debt ceiling. The debt ceiling is not a prohibition on borrowing new money; it is a prohibition on increasing the total level of public indebtedness. If Social Security cashes in some of its bonds, the Treasury can borrow that same amount of money from someone else.
What’s wrong with this picture? For several decades, many right-of-center Social Security reformers have argued that the program’s trust fund “bond reserves” were not real, because they already were spent on other government activities, and redeeming them would require either higher taxes, lower spending in other programs, more borrowing, or all of the above. Accordingly, the unfunded liabilities of the retirement program were even larger than officially stated. The trust fund balance existed only on paper in the bottom drawer of a government file cabinet in Parkersburg, West Virginia.
With this latest repositioning, in part to counter the president’s latest effort to threaten to tie senior citizens to the debt ceiling train tracks, other traditional defenders of Social Security might argue that it is a “real pension program backed by very substantial and real assets,” with a fiscal foundation as solid as a rock (albeit a small and eroding one as the trust fund runs out, which isn’t that far into the future). It turns out that retirement promises have “senior standing” as creditors and are first in line to get paid when the rest of the federal government approaches bankruptcy.
Political message to seniors: We’ve got you covered, so stop worrying about what happens to everyone else!
Despite the unfortunate reframing of the fiscal optics for Social Security financing, there is less here than meets the political eye. The potential for the retirement program to become a financial breeder reactor for reprocessing of spent budgetary fuel has its limits. Although the current Social Security trust fund balance could be spent even faster on benefits until it is depleted (sort of a national going out of business sale to seniors), it cannot be replenished absent new changes in the program’s revenue stream. Less clear-cut is whether trust fund reserves could be “loaned” to other government programs, such as the Medicare trust fund, and whether higher future interest payments on Social Security trust fund reserves would count against the current debt ceiling or provide new “assets” for the program.
In reality, there is no “net” fiscal free lunch at play here. When the redeemed trust fund’s non-marketable bonds are replaced by new borrowing in public markets within current debt ceiling limits, the Treasury is raising “new” cash that preempts additional borrowing under the ceiling for other non-Social Security purposes. These transactions make past borrowing on paper “real” and external, rather than just an intragovernmental loan that was just a bookkeeping entry until then. In converting trust fund assets into a fully loaded component of publicly held national debt, this process really just preempts a disproportionate share of current cash reserves in the Treasury to be used to pay one hundred cents on the dollar to senior retirees while cuts in the rest of the federal government’s budget need to be higher—absent approval of a higher debt ceiling or other increases in revenue.
So, to recap the reality of some of last week’s over-reaching rhetoric:
(1) Health insurance coverage by small businesses will continue to decline, but not primarily due to a high-speed easy pass to new state-based exchanges (the toll gates will be more restricted).
(2) Private-sector job growth remains disappointing, but the economy has produced more net jobs since May 2010 than it did from January 2009 through April 2010.
(3) The trust fund “lockbox” is legally real; but it’s limited and still just loaded with IOUs from taxpayers and everyone else (besides Social Security retirees) dependent on future government funding.
The temptation to push clever tactical political points beyond their useful strategic limits—particularly during stressful and overheated periods—usually produces neither PolitiFacts nor PolitiFictions. What we generally get is PolitiFudge. More experienced chefs would advise that once the first batch has been cooked to reach a very high temperature (adjusted for air pressure), it reaches a soft-ball stage and should be removed from the heat to cool. Vigorous stirring at the wrong time (after it’s reached the soft-ball stage) can actually promote crystallization of sugar into large grains. Let the mixture rest, undisturbed. At this point, a slight skin should have formed on the top. Be patient—this may take a while!